TACO BELL DECISION: STAY IN O.C. : Value Still Tops Corporate Orders : Fast food: Phenomenal growth followed chain’s strategy of offering customers more for less. Expansion next on menu.
In the futuristic movie “Demolition Man,” fierce competition has thinned the fast-food restaurant ranks to the point that, when hero Sylvester Stallone gets hungry, the only option is Taco Bell.
Taco Bell, which has decided not to move out of Southern California, undoubtedly paid dearly for that plug. But the cinematic vision is in sync with Taco Bell Corp. Chief Executive John E. Martin’s dream of turning the Irvine-based Mexican-style, fast-food company into the world’s ultimate food provider.
“We’re in the business of feeding people,” said Martin in a recent interview. “We’re not necessarily in the restaurant business. Our strength now is convenient feeding, not convenience, which means: ‘How do we make our food more accessible to people?’ ”
Martin talks boldly of expanding Taco Bell to 250,000 “distribution points” and $20 billion in revenue by the year 2000. That’s 25 times more locations than current market leader McDonald’s and revenue equal to 1993 sales by PepsiCo Inc., Taco Bell’s corporate parent.
Competitors aren’t scoffing at the grandiose battle plan crafted by Martin, the first fast-food industry leader to correctly gauge the public’s growing demand for value during the late 1980s. It was Taco Bell that shook up the industry in 1988 with a three-tiered “value menu” anchored by 59-, 79- and 99-cent entrees.
During Martin’s 10-year tenure, Taco Bell has grown from a small, regional chain into a international operator with stores in 50 states and 24 foreign countries. Restaurant sales rose to $3.9 billion, up from $500 million in 1983. The number of restaurant locations swelled to nearly 5,000 from 1,500.
It was just this phenomenal growth that made the corporation feel it needed to further expand and perhaps move out of state.
In the new lease it negotiated with its landlord, Shuwa Investments Corp., Taco Bell will receive a steep rent discount, a $4-million remodeling package and free parking for the company’s employees. The company, which leases a floor in smaller adjacent building, may later be able to lease up to four additional floors in the second building in Koll Center Irvine North.
And Martin continues to urge California lawmakers to establish legislation to provide tax incentives for companies interested in moving to or expanding in the state.
Taco Bell managers will continue to be busy as the chain pushes further from the Mexican-style, fast-food niche that Taco Bell founder Glen Bell envisioned when he opened his first restaurant in Downey in 1962.
* Last year, the fast-food leader entered the casual dining segment by acquiring Chevys Mexican Restaurants, a San Francisco Bay Area chain with 40 locations, including a handful in Orange County. Martin wants to expand Chevys into the nation’s largest chain of Mexican-style, sit-down restaurants.
The company also announced plans for an as-yet unnamed string of Southwestern-style, sit-down restaurants. Martin has hired Orange County restaurateur David Wilhelm and leading chefs in Los Angeles, Santa Fe, N.M., and Washington to help plot the company’s course.
* Taco Bell and sister PepsiCo subsidiary Frito-Lay joined forces in 1993 to test market a new line of Taco Bell-brand supermarket products. The line, sold in Eastern grocery stores, includes dinners, taco shells, refried beans, tortilla chips and taco sauce.
* Taco Bell operates the Hot’n Now quick-service hamburger chain, with more than 100 restaurants in the United States. The chain offers “no-frills” food in the form of hamburgers, fries and soft drinks.
* Taco Bell’s “New Concepts” division is delivering the company’s product to consumers through carts, kiosks and mobile units. The division is now operating on college campuses, at athletic stadiums, airports, gas stations and retail stores. Taco Bell also has carts operating in Mexico City and Moscow.
“In addition to the four walls of our restaurants, you’re seeing us at airports, you’re seeing us at movie theaters, at hospitals, at grocery stores,” Martin said. “You’re seeing us on the shelves now of 10,000 supermarkets. . . . Our stated goal is that we want to be in about 250,000 places in the next 10 years.”
If that dramatic growth weren’t enough, Martin also is considering branching into entertainment. “It’s a very preliminary concept,” Martin said. “It would not be a Hard Rock Cafe. It would be more entertaining that that--more technology.”
Martin began his restaurant career in 1970 as a food-service manager for Canteen Corp. and ARA Services, two Denver-area companies. Three years later he joined Burger King as a restaurant manager trainee. In the early 1980s, he became president of PepsiCo’s La Petite Boulangerie bakery operation in San Francisco.
When Martin transferred to Taco Bell in 1983, the Detroit native described himself as an executive “born in burgers.” But within a few months, he had toured the company’s national operations and started to dream up new menu items. And he quickly began to recast Taco Bell, then a regional powerhouse with 1,500 restaurants with $500 million in revenue.
Within a decade, the company expanded to 4,500 restaurants and $3.9 billion in worldwide revenue. That growth curve, along with technological changes in Taco Bell’s kitchens, has drawn high praise.
Harvard Business School has described Taco Bell as the model for tomorrow’s restaurant industry. “If McDonald’s is the epitome of the old industrialized service model, Taco Bell represents the new, redesigned model in many important respects,” said Harvard Business School Associate Prof. Leonard A. Schlesinger.
Last year, the business school used Taco Bell as a case study in how to restructure operations in order to provide better value to its customers. While Schlesinger said the goal--better value--is hardly revolutionary, he applauded Taco Bell for setting aside accepted restaurant industry practices and inventing a new standard of service.
Many of those changes are taking place behind the counter at Taco Bell’s restaurants. In 1983, kitchen facilities occupied 70% of the chain’s restaurant space, with just 30% available for customer seating. But newer Taco Bell restaurants use new food-preparation processes and technology to reverse that ratio.
“In the long run, that automation could be even more important to the industry than the value menu,” said consultant Paul. “They’ve cut labor costs, construction costs and, from a consumer perspective, are providing more consistent service. That’s benefiting the consumer.”
Martin now talks of steering Taco Bell toward a Disney-like organization that goes far beyond restaurants and into entertainment.
“Our view is that the Taco Bell brand is very powerful,” said Jonathan Blum, vice president of public affairs. “We put our customer first . . . and if their lifestyles change, their working habits change, we have to meet and exceed their expectations as to where, when and how they purchase our food.”
Ringing Up Profits
Taco Bell has had steady success during the last five years. During that period, net sales nearly dobled while operating profits increased 131%. Net sales and operating profits, in millions:
Net Sales: $2,901.3 (1993)
Operating Profits: $253.1 (1933)
Market Diversity
Taco Bell has proved a a hit both at home and over the border. During the 1988-93 period, average domestic sales per unit leaped 57%. And worldwide system sales more than doubled. Average unit sales in thousands, worldwide sales in billions:
Domestic Unit Average: $925 (1993)
Worldwide Sales: $3.9 (1993)
Restaurant Growth
Mirroring its increased sales and profits, Taco Bell has continued to open more restaurants in the last five years, increasing the number 68%.
1993: 4,921
Nibbles and Bits
Taco Bell accounted for more than 70% of the domestic Mexican-style fast food restaurant market last year.
Of the company’s $ 3.9 billion worldwide sales $3.8 billion was in the U.S.
1993 worldwide sales increased $441 million over 1992 figures.
Much of the increase in 1993 net sales and operating profits resulted from $89 million in sales of additional restaurant units.
Source: PepsiCo Inc.
